FTC lays down the law but takes flak for delay

The anti-trust agency is coming under fire for being too slow in rolling out new measures to protect the sales of licensed coffee stores.

The Fair Trade Commission (FTC) yesterday forbade coffee chains from allowing new franchises to open within a 500-meter (0.31-mile) radius of any existing store by the same brand.

The nation’s top five coffee franchises - Caffe Bene, Angel-in-us, Hollys, Tom N Toms and A Twosome Place - posted combined sales in excess of 50 billion won ($46.18 million) last year.

The commission said the measure aims to better protect franchisees in an over-saturated market.

“As the number of reported conflicts between the head offices and franchise stores are growing due to the sharp increase in the number of stores, we expect the new measure will help protect store owners and lay a foundation for shared growth,” said Lee Dong-won, a director of the FTC unit dealing with such franchises.

The FTC also blamed the headquarters for imposing excessive financial costs on franchise owners by inflating the construction fees for the stores’ interiors. The commission then banned the headquarters from ordering stores to change their interiors within five years of opening.

Unlike other food and beverage operations that allow individual store owners to choose from a long list of interiors, coffee chains tend to have exclusive contracts with one interior designer.

The FTC said the chains’ headquarters profit by overcharging franchisees for the contractors’ work.

“Coffee brands will have to disclose details of their contracts with the interior designers from now on,” Lee said.

The new regulation does not apply to Starbucks nor Coffee Bean and Tea Leaf as their head offices directly control their respective stores in lieu of franchise contracts with individual operators.

However, critics say the government should have acted sooner as there has been a significant slowdown this year in the number of new coffee franchises opening, especially in Seoul.

The FTC is preparing similar guidelines for convenience stores this year to also put a lid on the rapid rate of new store openings, it said.

It issued comparable guidelines for bakery chains in April and for chicken and pizza chains July.

By Lee Sun-min [summerlee@joongang.co.kr]